Tuesday, August 24, 2004

The headline is all over the place: The President has admitted that the country is in a fiscal crisis. It means we are about to default on our obligations to our creditors or the government will stop working.

Litigation lawyer that I am, my first impulse is to ask, are those debts really valid? Did we really contract those loans? Did we get the proceeds? Did we get fair deals? Given the propensity of Goverment to disarray, I believe a big chunk of those debts are probably not in order.

The current buzz in political circles is that one of the reasons why we are in serious debt is that some officials made money on commissions on those debts. For banks and financial institutions, getting somebody to borrow their money is deemed a "sale". Thus, the more people who borrow, the more sales they generate. And to motivate governments to borrow, financial institutions paid sales commissions. To whom? Let's just say this scheme is probably the best explanation why our Government had so much appetite for debt, in spite of the fact that we have been under heavy debt burden since the Marcos years.